The end of the ethanol boom coming soon? Investors watch out
Ethanol prices continue to rise, investors are enjoying tossing money hand over fist at ethanol producers, and somewhere in the melee a few voices are saying, "Um, perhaps we should think this through." Those voices were recently collected by Chicago Tribune writer James P. Miller, who found reason to think the heady ethanol boom may soon turn sour.
With some highly valued ethanol companies not even producing any biofuel yet, and others focusing heavily on getting IPOs settled, the value of these stocks is coming under scrutiny. Bear Stearns analyst Ann Duignan said in a recent report that ethanol producers "are likely seeing the peak of their margins now," before all of the ethanol production capability comes online and floods the market. Credit Suisse told investors in a recent report, adding, "the danger of overbuilding [ethanol plants] is a real one." The final picture is unclear, Miller says, since the complexities of the ethanol market (the federal alternative-fuel requirements, the size of the annual corn harvest and the fluctuating world price for a barrel of oil) make it a tough one to predict.
[Source: Chicago Tribune]
Reader Comments (Page 1 of 1)
Howard Lee Harkness 10:03PM (9/03/2006)
Somebody must've figured out that ethanol is not economical, and won't make it in the market without substantial government subsidies and/or coercion.
Again, for the slow learners and innumerate ethanol supporters: 1) Ethanol is a lousy fuel, and 2) corn, while Politically Correct, is a lousy source for ethanol. Note that dinosaur juice is used in the production of ethanol, because if the energy needed for production was derived from ethanol, the yield would drop to near zero.
It's a good sign that the market is figuring this out. I hope that ethanol goes bust before the PC crowd figure out how to utilize government coercion to force everyone to use this uneconomic (and decidedly NONgreen) fuel.
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Jake 2:56AM (9/05/2006)
Somehow I belive oil companys receive far more goverment subsidies.
I think it may be cheaper to support ethanol or biodiesel produciton over oil these days.
Dinosaurs are not the source of oil.
Ethanol is a good thing. If people have to pay more for it and it gets less mileage than gas, so be it.
It sure beats MTBE as a fuel additive.
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Mike 3:25AM (9/04/2006)
In Iowa Falls, Iowa, ethanol producer Hawkeye Holdings Inc. is hoping to raise more than $500 million through its planned IPO. And US BioEnergy Corp. of Inver Grove Heights, Minn., jumped on the bandwagon this month when it filed documents covering a planned offering worth up to $300 million.
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Andrew 1:20PM (9/04/2006)
Jake
Oil companies do receive subsidies. But they make lots more fuel - subsidy per gallon is less. Ethanol gets 51 cents per gallon from federal taxpayers and lots of state breaks.
If someone wants to pay more for a fuel with 25% less fuel mileage - that is their right. Just don't hold your breath. Without mandates, tariffs and huge taxpayer payouts ethanol could no compete.
How do I know all of these subsidies and mandates are needed? Look how hard the ethanol lobby fights for them - they are admitting they need them.
Right now wholesale ethanol is about 40 cents a gallon more (actually higher because of extra transport costs). So with taxes etc and without subsidy E85 would sell for about 30 cents more. Imagine regular 2.60 per gallon and E85 2.95 per gallon and getting 25% lower fuel economy (many E85 rigs are big trucks and SUV's and get 10 mpg or less real world on E85 - OUCH!!).
We can continue with big subsidies but we are only *pretending* ethanol is cheaper. There is no free lunch - even when the feds buy it by borrowing more money.
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Fred Bridgehouse 3:01PM (9/07/2006)
The american farmer is one of the only businesses left that buys retail and sells wholesale. Give them a break! Why should we not support an industry within our shores that will reduce foreign dependence, regardless of how small the amount may be.
The mileage figures will improve with technology, as they have with gasoline. It's still our choice to drive a big vehicle over a small, more efficient one.
The full story is not yet complete on how clean the combustion process can be made. Give it time and give it a try, it's new to the road.
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